Employment contract restrictions, also known as restrictive covenants, are clauses in an employment contract that restrict what employers and employees can do during and after the employment relationship. It is important to know that employment contracts can be considered binding, whether they are express or implied, written or oral. Other company documents, such as an employee handbook, can provide binding restrictions on the employment relationship.

Termination Restrictions

Employment contracts can include restrictions on termination. These restrictions can supersede any state law that presumes “at-will” employment. At-will employment means that either the employer or employee may terminate the employment for any reason (or no reason) except as provided for by laws protecting employees from specific discrimination and other unlawful practices. Employment contracts can have “for cause” restrictions that don’t necessarily mean misconduct but can include “continued incapacity to perform” or some other specified reason. If the term “cause” is not defined in the contract, the courts will determine what the parties meant by the term.

Confidentiality Restrictions

One of the most common restrictions found in employment contracts concerns confidentiality and is sometimes called the non-disclosure clause. This protects the employer from an employee disclosing company information to third parties by allowing the employer to seek injunctive and monetary damages should the employee violate the restriction. It can also limit the use of confidential information by the employee while employed. The type of information that can be restricted is virtually unlimited. Some states grant employers all-encompassing rights of ownership. For instance, California Labor Code Section 2860 provides: “Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.”

Non-Compete Restrictions

In some circumstances, an employer will seek to protect himself from employees taking customers or trade secrets with them should they leave the company. To accomplish this, the employer places non-compete restrictions in the employment contract. However, many states have ruled such restrictions invalid, stating that no restraints can be placed on anyone engaging in a lawful profession, trade or business of any kind. The most common exceptions to this rule are when a non-compete restriction is needed to protect trade secrets or prohibit practices that would constitute “unfair competition.” An example of an unfair competition practice is the employee's use of the former employer’s client list. Some states apply the test of “reasonableness” to the restriction, such as the geographic scope, duration and type of activity specified in the restriction.

Other Restrictive Covenants

The other types of restrictive covenants found in employment contracts are non-disparagement, non-interference and non-solicitation. Non-disparagement clauses prevent the employee from saying negative or disparaging things about the employer. Non-interference restrictions state that the employee may not interfere with the relationships the employer has with vendors or customers or interfere with any referral mechanisms. Non-solicitation restrictions prevent the employee from approaching other employees for the purpose of getting them to leave the company.

About the Author

Lisa Dorward was a corporate financial executive and business consultant for more than 15 years before becoming a writer in 2003. She has B.A. degrees in both history and creative writing and earned her M.F.A. in creative writing in 2008, specializing in novel-length historical fiction.